EDITOR: | April 10th, 2013

Alkane releases robust result for Dubbo project; Shares jump

| April 10, 2013 | No Comments

Pulse_Proof-04-300x229It’s about time there was some good news for the Australian rare earth industry. And, in light of the lack of investor interest in rare earths at the moment, the 20% rise in Alkane Resources’ (ASX:ALK) is very welcome.

The company has delivered its definitive feasibility study for the Dubbo Zirconia project showing that, over a 20-year mine life, it would have an EBITDA (earnings before interest, taxation, depreciation and amortisation) of A$5.23 billion.

Sure, the shares fell back as trade progressed over Thursday morning here in Sydney but (1) they were still registering a significant gain and (b) it shows – at long last – that the right rare earths and critical metals story will bring back the investors.

The project capacity will be 1 million tonnes a year costing a total capital outlay of A$996.4 million, with annual revenue of A$503.5 million and annual operating costs of A$213.5 million. The internal rate of return will be 19.3%.

All Ian Chalmers and his team now have to do is make this project a reality, but much of the work is done, both technically and financially; in terms of the latter, as we have reported here on ProEdgeWire, several strategic partnerships have been established and more are to come.

The technical story is well known, and the milestones have been passed. But let’s have a look at the market and revenue projections because – with metal prices seemingly in the doldrums – these aspects are going to be looked at very closely by analysts and investors to make sure there is no serious downside risk.

Zirconium: By 2020, total zirconium materials demand will reach 239,000 tonnes. Zircon demand in 2020 for zirconium materials would therefore require 368,000 tonnes a year of zircon, or 150,000 tonnes a year more than in 2012. Alkane says there are numerous end-use market opportunities for Dubbo zirconium materials in the form of zirconium chemicals and chemical zirconia. The company expects the present weakness in the zircon-zirconium materials pricing will dissipate over the next two years.

Niobium: The price has been stable at between $40/kg and $45/kg for the past few years. Alkane, because its offtake agreement with a European buyer has not been finalised, has used a niobium range between $30/kg and $35/kg for revenue estimates in the feasibility study.

Rare Earths: “Despite the negative sentiment directed at the rare earth industry over the last 12 months, the industry has underlying strength and significant growth potential,” Alkane says in today’s statement. While the details of the agreement with Japan’s Shin-Etsu Chemical Co are confidential, the company says light and heavy rare earths revenues have been estimated at $101.3 million a year and $127.4 million a year respectively.



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